Technology, Public Policy and Coal: Making the Connection

Thank you very much. I appreciate the opportunity to be here for your first Annual Conference. It is always a pleasure to come to Australia from the United States. For this trip, I decided to bone up a bit on Australian phrases. And I was interested to learn that someone who has “gone bush” in Australia is actually traveling in the outback.

In America, of course, someone who has “gone Bush” is someone who supports the President. And then there are all the others who merely want Bush gone.

Seriously, I am delighted to be here and to learn more about COAL21. As I looked through the program for the next two days, it occurred to me that we have a long way to go in terms of educating people about some of the things you will be talking about. There is IGCC, CCS, ultra-clean coal, oxy-fuel and more. To get an idea of the degree to which these issues have penetrated the mainstream consciousness, I decided turn to that all-important resource: Google. And so I typed in CCS, confident that I would immediately be referred to information about carbon capture and storage.

But, lo and behold, I was directed before anything else to a firm called Custom Computer Services in Brookfield, Wisconsin. Other listings on the opening pages of my CCS search were for the Canadian Cardiovascular Society, the Congress of California Seniors, the Community College of Spokane and, of course, the Captain Cook Society, which should be of great interest here in Australia. The Australian branch of the society, by the way, will be holding its annual meeting later this month right here in Sydney, in case you are interested.

In any case, I clicked through several pages of results and failed to find even one mention of carbon capture and storage. And when I typed in IGCC, I had to scroll through listings for the Insulating Glass Certification Council and the Indo-German Chamber of Commerce before I got to anything about coal.

The point of all this is that it appears we have some work to do in order to bring the technologies we are talking about into the mainstream of society. And that is what I want to talk about today: what we need to do so that we can get these technologies developed as quickly as possible, and begin to significantly reduce greenhouse gas emissions from coal generation.

But first I want to say how impressed I am to learn more about COAL21 and to see such a serious and sincere commitment to climate solutions on the part of industry. And I applaud the partnerships you have forged with government and the research community.

We may not have an initiative quite like COAL21 in the United States, but we do have industry leaders like you, who are acknowledging that climate change is a problem and who are committed to addressing it.

To date, 38 companies have joined the Pew Center’s Business Environmental Leadership Council. These companies include some of the most well-recognized brand names across the globe. They represent most industrial sectors and the largest emitters of greenhouse gases, including coal-burning utilities, mining companies, aluminum producers, automobile manufacturers, pulp and paper manufacturers, chemical companies, oil and gas businesses, and the cement industry. In joining the Council, these companies are united with the Pew Center in several beliefs, including this one – and I quote:

“We accept the views of most scientists that enough is known about the science and environmental impacts of climate change for us to take actions to address its consequences.”

It is a very simple statement – and it is a statement that all of you, through your participation in COAL21, could surely sign onto as well. But, of course, I didn’t come all this way simply to give you a pat on the back and say “G’day.” What I want to do this morning is challenge you to think even bigger and more broadly about coal’s future.

I want to start by laying out what I believe are two predictions for the future in which I have great confidence. The first is that we will soon be living in a carbon-constrained world. And the second is that coal will continue as a primary source of energy throughout the globe. How we reconcile these two predictions is, I believe, the crucial question facing this industry in the months and years ahead.

So let me talk briefly about prediction number one: the inevitability of carbon constraints. The scientific consensus on this issue seems to me to be quite clear. The earth is warming, this warming will accelerate in the years ahead, and it is largely the result of human activities. Yet another point of consensus – it is actually an indisputable fact – is that there is a great deal of inertia in the climate system. The greenhouse gases we have already placed in the atmosphere will continue to warm the planet for many decades, if not centuries with important consequences for sea-level rise, water availability, ecosystems and human health.

Right now, there is about 40 percent more carbon dioxide in the atmosphere than there was at the dawn of the Industrial Revolution. In fact, we haven’t experienced this level of carbon dioxide emissions for over 400,000 years.

In order to stabilize atmospheric CO2 concentrations at double their pre-industrial level (or 550 ppm)– a scenario that many scientific studies use to project the consequences of global warming but one that involves some adverse effects from climate change – the TOTAL amount of CO2 emissions we can release is roughly 1200 Gigatons (Gt).

Now think about this: Since the beginning of the industrial revolution – when the burning of fossil fuels began adding CO2 to the atmosphere -- we have consumed one-quarter of this budget.

At current growth projections, and I believe these are quite conservative, we will have consumed another quarter of the budget in a fraction of that time – in only another 25 years, or by 2030. So you can see where this is going – it took us over 100 years to use the first quarter – only 25 for the next – and in the absence of change from our current path, we reach – and surpass concentrations of 550 ppm (a doubling of pre-industrial levels) well before the end of this century, leading to greater impacts, such as the loss of coral reefs and barrier islands.

We have to get serious. I recognize that cost is the biggest driver in business decision making. But we also have to think about the environment when we make decisions, particularly for substantial capital investments that will last a long time. Because if we make the wrong decisions, we will not only be sacrificing the environment, but we will also end up by stranding significant amounts of capital.

So it is critical that we wake up and pay attention both to what the science is telling us and to where the economics of bad decision-making will lead. If we start now, I am convinced we can do this in an intelligent, measured way – a way that promotes investment in new technologies and allows time for capitol stock to turn over, so that we both protect our environment and sustain a growing global economy.

And the fact is, people already are waking up. The growing scientific consensus on this issue has prompted people and governments around the world to stand up and take notice, and to embrace the need for change. One sign of how far this issue has progressed came at this year’s World Economic Forum in Davos, Switzerland. When asked to identify key issues facing the world today, participants in the forum (50 percent of whom came from industry) listed climate change as one of the top three – ahead of terrorism and weapons of mass destruction. Here is a brief quote from the official review of the meeting:

“Increasingly, global businesses recognize that we are at a tipping point on climate change. There is growing recognition that mitigation decisions must be taken now.”

And right here in Australia a poll conducted by the Lowy Institute found that the two international issues that most concern your citizens are nuclear weapon development and global climate change.

70 percent of Australians polled expressed concern about global warming, while only 63 percent expressed concern about international terrorism and 44 percent spoke of illegal immigration and refugees.

But people are not just acknowledging this problem; they are also doing something about it. Kyoto, as all of you know, is now in force, meaning that more than 140 countries, including most of the world’s industrial powers, are implementing or considering steps to meet their treaty commitments and reduce their emissions.

We are also beginning to have serious discussions about what happens after 2012, when Kyoto’s current commitment period is over. And, as the world embarks on the next phase in all of this, what has happened until today will be a walk in the park. Because, whatever form it takes, the next international agreement is going to include much more action from many more countries, as we enter a seriously carbon constrained world.

Kyoto, of course, is not the only case of governments responding to this issue. We also have seen the launch in the EU of the broadest emissions trading system ever established. And, in Great Britain, the government has developed an energy blueprint for the next 50 years that makes climate change a key driver of that country’s energy policy, along with price and security of supply. Prime Minister Tony Blair, who is serving as president of the G-8 nations this year, has made climate change a priority for that group.

And it is not just national governments that are taking action. In the United States, 28 state governments have adopted climate action plans, and 15 have programs or policies in place to reduce, sequester or register greenhouse gases. Governors from 10 northeastern states are working on a strategy to reduce carbon dioxide emissions from power plants through a regional cap-and-trade initiative. And, 19 states have adopted renewable energy mandates that will result in real reductions in emissions.

Here in Australia, there is also a great deal of activity going on, at all levels of government. So the ball is rolling for real action on this issue at the international, the national and the subnational levels. And it is gaining speed. The trend is undeniable. Carbon constraints are on the way – indeed, in many instances they are already here.

“One day we will live in a carbon-constrained world.” That is a direct quote from Jim Rodgers, the CEO of Cinergy Corp. in the United States. And he is not the only U.S. electricity or energy executive saying this. John Rowe of Exelon has said in no uncertain terms that – quote – “there should be mandatory carbon constraints.” And here’s a quote from Wayne Brunetti of Xcel Energy: “Give us a date, tell us how much we need to cut, give us the flexibility to meet the goals, and we’ll get it done.” End quote.

I hope I have made a compelling case to you that carbon constraints are on the way – and industry needs to be prepared. So then we can move on to the second prediction, that the world will continue to rely on coal. I do not need to tell you about the vital role that coal plays, and will continue to play, in meeting the world’s energy needs. But I do want to offer a few statistics to put it in perspective.

In the United States today, coal provides 51 percent of all electricity, more than double the amount of any other fuel source and five times more than gas, oil, or hydroelectric power. Here in Australia, of course, coal is even more dominant in the energy mix, providing 85 percent of the nation’s electricity. And then there are the developing countries like China and India. China alone now accounts for 31 percent of worldwide coal consumption, and the developing world is going to be bringing huge amounts of new coal burning capacity online in the years ahead.

The bottom line: Coal is the most abundant energy source today, it is dispersed throughout the world, and it is available at a relatively low cost. There is no way that the world can continue to quench its growing thirst for energy without it. So those are the facts: carbon constraints are coming, as they should be, and coal is here for the long haul. Now the question is how do we reconcile these future scenarios? How can the future include both carbon constraints and coal? In the United States today, coal is responsible for 33 percent of carbon dioxide emissions. The comparable figure for Australia is 58 percent. Worldwide, the proportion of CO2 emissions from coal is 26 percent. As we say in America, something’s got to give.

To the extent that the coal industry fails to take seriously its obligation to substantially reduce emissions, then the controls imposed from outside are likely to be both more severe and less business-friendly. This is why the COAL21 National Action Plan is so important.

By laying out a pathway for developing new technologies to reduce coal-related emissions, you are planting your flag on the side of solutions. But the most important point I want to leave you with today is that a technology strategy alone is not enough. It is absolutely essential. But we also need broader climate policies that will draw the new technologies into the marketplace– policies that reflect the urgency of this issue and the need for real reductions in emissions.

Technology and policy. We need to do both. And we can do both. So let me go back to the 2005 World Economic Forum meeting at Davos, where there are two thoughts that are particularly relevant. First, “There is no single “magic bullet” or technology to address climate change. A diverse portfolio of low and zero carbon technologies will be required.” And second, “But it is essential that business be guided by clear price signals and a predictable regulatory path.” I’d like to spend a little time now talking about ways to move forward on each of these priorities.

First, technology. You are the experts on the technologies that can reduce greenhouse gas emissions from coal. And the agenda for this conference reflects that. Over the next two days, you will be talking about CO2 capture and storage, IGCC, oxy-fuel combustion, lignite dewatering and drying, ultra-clean coal and more. The potential for combining IGCC with carbon capture and storage is, of course, where a lot of the attention is right now – and for obvious reasons: whatever we do, we have to do it as efficiently as possible. But each of the technologies on your agenda holds great promise. And we need them now.

Worldwide, in developing and developed nations, the International Energy Agency anticipates that about 250 gigawatts of new coal capacity will be built in this decade. We will build almost double that (480 gigawatts) between 2011 and 2020. We have already missed our chance to influence the choice of technology for most of the capacity that will come online before 2010. But the longer we wait, the more likely it is that we will fail in the next decade as well. We simply cannot afford to do this.

So where are we today in developing the technologies we need? Well, let’s look at IGCC as an example. Right now, there are only two real IGCC plants in operation in the United States, but neither is operating fully on coal. Of 106 proposed new coal plants for the U.S., nine are IGCC. There is also the Bush administration’s $1 billion FutureGEN project, which you will hear about later. But no specific plans have yet been announced. So, in reality, we haven’t figured out if this is even viable yet.

With carbon capture and the other technologies, it is the same story. Lots of great ideas, some demonstrations here and there, but we are nowhere near where we need to be. And governments and industry are going to have to work together to jump-start these technologies and get them to a point where they can actually make a difference.

The COAL21 National Action Plan is absolutely correct in saying that international collaboration in this work is essential. We need to reduce duplication of effort—and that means planning, funding and deploying trial projects with publicly shared results. Any R&D we do on these technologies should be focused squarely on the remaining technical hurdles to their deployment, with special attention to reducing the costs involved. There is enormous potential here – but, as all of you know, we have a lot of work to do before these technologies can even begin to make a real contribution to protecting the climate. And the clock is ticking.

But again, an R&D focus alone is not enough. We need to combine technology and policy. A recent Pew Center study looked at three future energy scenarios for the United States – one where oil and gas are abundant and relatively inexpensive; one where energy supply disruptions and terrorism concerns lead to more interest in both alternative energy and coal; and one where government and industry partner to get climate-friendly technologies to the marketplace.

Even in this last scenario, where technology triumphs and where we presumably would get a fairly good handle on technologies such as carbon storage and coal gasification, the study projected no net reduction in U.S. carbon emissions by 2030 without a broader climate policy. I want to repeat that for emphasis – even if we get these technologies to a point where they can be deployed in cost-effective ways, we still need broader policies to enable change. Industry needs to know that government is serious about this issue, that there are clear and certain goals driving our policies, and that all sectors will be held accountable for reducing their emissions.

What types of policies am I talking about? At the international level, we need an agreement that engages all major emitters of greenhouse gases, from both the developed and the developing world. It is the only fair way to do this. It is the only way to bring the United States – and Australia too – back into the process. And it is the only way to fully engage the major emitters in the developing world.

But I am not saying that all countries—or all companies—need to play by the same rules. Flexibility is key. Different countries are at different stages in their development, and they have different resources to invest in climate solutions. And different countries are endowed with different kinds and quantities of natural resources. So we need a framework where everyone is involved in ways that they and their competitors view as fair. “Fair and effective” should be our mantra as we move forward. “Fair” because we need broad engagement in this effort, and “effective” because we need to create pathways that get us to a low-carbon global economy. .

Moving from the international stage to policies at the national level, we need to look at an assortment of policies that can contribute to reduced emissions. One of these is cap-and-trade. As you know, this is a policy that sets targets for greenhouse gas emissions and allows companies the flexibility to trade emission credits in order to achieve their targets. This is the policy in New South Wales, and, as I already mentioned, a number of U.S. states are considering a cap-and-trade initiative as well.

The United States Senate for the first time voted on a national cap-and-trade measure last year. It attracted the support of 43 senators, and its sponsors have vowed to bring it up for consideration again. Cap-and-trade policies can be important because they encourage economy-wide reductions in emissions. And the work we have done shows this is the least expensive way to do it – reductions happen where it is cheap and where it makes the most economic sense.

However, cap-and-trade is far from the only policy option at the national level. And for some countries, it may not be the preferred approach. Government standards and codes, public infrastructure investments, public-private partnerships and government procurement all have a role to play in reducing emissions and forcing change. We also may need to think sector by sector, either on a national or a global basis. Are there specific sectors where a particular approach makes the most sense, and if there are, how should we go about getting new technologies and new processes into the market for that sector.

In the electricity sector specifically, we need policies and incentives that will result in companies building the best, most efficient plants they can; retiring old, inefficient plants as expeditiously as possible; and capturing and storing the carbon stream.

We also need national energy policies like the British example – policies that balance our desire for security, growth and affordability with the need to build a diverse portfolio of climate-friendly technologies.

Last but not least, we need to pay attention to adaptation. Because, even with an ambitious strategy to reduce emissions, we’re already committed to future changes in the global climate that will pose serious challenges to our natural ecosystems and resources, our economies, and human health. The recent report from the Arctic Climate Impact Assessment made it crystal clear: climate change is happening now. And the nations of the world need to be ready to adapt.

This morning, I have made 2 predictions: carbon constraints are coming; and coal will remain a crucial source of energy throughout the world. And I have talked about how we can reconcile these facts in two ways: first, by making a much more vigorous commitment to technologies that will reduce the environmental impact of coal generation; and, second, by advancing broader public policies to mobilize real action on the climate issue both in our domestic economies and worldwide.

I believe the only way to address this problem successfully is to unleash a global technological revolution. And the goal of governments, acting multilaterally and within their own borders, must be to adopt policies and strategies that spur this revolution on.

In Australia, in America and throughout the world, businesses continue to receive mixed signals from their governments about whether or not we are serious about addressing this challenge. It is time to erase all the doubts and the uncertainty. It is time to act boldly, government and industry together, to embrace the importance of both technology and public policy in protecting the climate we share.